The threats to Minnesota's Medicaid funds are unprecedented. Other states could be next

When Sarah Lindbo's 14-year-old daughter Greta is thriving, she is playful, engaged and not in pain.

Greta, who has cerebral palsy, requires a range of supports to get to that point. That includes doctors, medical equipment, prescriptions, a paraprofessional at school and a care assistant at home. Many of these services depend on Medicaid.

" Medicaid makes a huge impact in our day-to-day life," Lindbo said. "It is the foundation of what gives Greta her experience at school and in our community and our family."

But lately, Lindbo has been nervous. She and her family live in Minnesota where hundreds of millions of dollars — and possibly billions — for the state's Medicaid program are in limbo as part of the Trump administration's crackdown on fraud. It came after federal prosecutors last year alleged that billions may have been stolen from Minnesota's Medicaid program over the years and charged a number of people with Medicaid fraud.

Dr. Mehmet Oz, who oversees the Centers for Medicare and Medicaid Services, has argued that widespread fraud has persisted for too long, hurting both taxpayers and those who rely most on the program.

"This is not a problem with the people of Minnesota. It's a problem with the leadership of Minnesota and other states who do not take Medicaid preservation seriously," he said at a press conference on Feb. 25.

But health care policy experts say the threats to Medicaid funding are unprecedented — going far beyond the typical steps to address fraud and at a scale that could disrupt services for patients.

"If this becomes the framework for addressing fraud, it's really destabilizing," said Allie Gardner, a health policy researcher at the Center on Budget and Policy Priorities, a progressive think tank. " It risks the coverage and care for those that depend on the program."

CMS declined to comment, citing pending litigation. Earlier this month, Minnesota filed a federal lawsuit over a portion of the frozen Medicaid funds. In a press release announcing the suit, Minnesota Attorney General Keith Ellison asserted that the state has taken a concerted effort against fraud and the federal government's "cut first" approach risks care for Minnesotans. 

"The Trump Administration's M.O. is to cut first, no matter what the law says or who gets hurt, and ask questions later, if at all," he said.

Breaking down what's happening to Minnesota's Medicaid funds

Administrator for the Centers for Medicare & Medicaid Services Dr. Mehmet Oz speaks during a news conference on efforts to combat fraud, at the White House on Feb. 25, 2026.

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Tom Brenner

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The federal government partners with states to fund Medicaid. But after widespread fraud allegations surfaced in Minnesota, CMS announced it would halt federal funds for the state's program in two ways — retroactively and going forward.

The retroactive move is called deferral. In February, CMS said it would delay reimbursing about $259.5 million that the state spent on Medicaid last summer, citing concerns about potential fraud and coverage for patients without legal status, who are not eligible for Medicaid.

The federal agency asked the state to prove that funds were spent lawfully across 14 categories of providers which Minnesota had previously identified as "high risk" for fraud. (Last year, the state shut down one of the programs, Housing Stabilization Services, citing widespread fraud.)

Deferrals are a standard oversight tool for CMS but they are typically narrow in scope — like a review of a specific set of claims, according to Gardner. When deferrals are too broad or vague, it can be more difficult and time-consuming for the state to gather the proper evidence and respond to the issues, she said.

"The state kind of has to shoot in the dark in responding to CMS on what documentation they need to provide," Gardner said. "What is the scope of information needed? Do they need documentation to justify every single claim?"

The second move is known as withholding. Here, the federal government is saying it will hold off payments for future care.

That decision came after CMS asked Minnesota in December for a plan on how it will prevent future fraud. The state later submitted a proposal with a list of actions, including strengthening certain review processes and pausing provider enrollment in the "high risk" programs. But in January, Dr. Oz announced that the state's plan was "deeply insufficient," and therefore, CMS intended to withhold about $2 billion annually in future federal funding.

According to Gardner, this kind of move is rare, especially with an amount this large. Using both deferral and withholding simultaneously puts Minnesota at risk of a massive and sudden financial hit.

" CMS' use of both of these processes to go after the same services at the same time — that's really concerning," she said. "Especially given the significant financial consequences to the state and providers as well as, to the care and coverage of Medicaid enrollees."

Before CMS can start withholding future funds, the state has an opportunity for a hearing. If CMS decides not to release the funds in deferral, the state also has a chance to appeal. Minnesota's lawsuit pertains to a bulk of the money stuck in deferral.

Minnesota could be a test case for other states

Attorneys representing CMS have argued the $259.5 million in deferral involves services that were already paid for by the state, which only represent about 7% of quarterly federal funds owed to Minnesota.

But Andy Schneider, a Medicaid policy expert with the Georgetown Center for Children and Families, said the state likely planned its budget with the expectation of receiving those reimbursement funds.

" The federal government has just told the state, you have $259 million less to work with for the services that are happening now," he said. "That's a lot in a short period of time."

The potential loss of $2 billion in future funding would be even more challenging for the state to manage, according to Schneider. It could slow payments to providers and delay the enrollment of new patients. It could also force the state to cut reimbursement rates and limit the number of services it covers, he added.

While Minnesota has been under unique federal pressure, CMS has also sent letters to California, New York and Maine, raising concerns about potential fraud in each of the state's Medicaid programs.

Schneider, who also served as a senior adviser to CMS during the Obama administration, said this step could be an early warning signal for deferring or withholding federal Medicaid funding in those states.

Earlier this month, the House Committee on Energy and Commerce launched investigations over Medicaid fraud in 10 states: California, Colorado, Massachusetts, Maine, Nebraska, New York, Oregon, Pennsylvania, Vermont and Washington. All but Nebraska and Vermont are led by Democratic governors.

Schneider agrees that it's important to root out bad actors exploiting Medicaid, but he argues that federal-state collaboration is essential to tackling fraud concerns while not jeopardizing people's access to care.

" If they were really worried about it, they would continue to do what we did in the past, which is to work cooperatively with the state," he said.

When Lindbo first heard about the potential threats to Medicaid, she got emotional. Although her family has private health insurance, Lindbo said it does not cover many of her daughter's critical services, such as the school paraprofessional who helps Greta get ready for class and assists Greta if she has a seizure.

According to Lindbo, any disruption to Greta's care could undo the progress she has made.

" Regression is real," she said. "That would just be so heartbreaking because she's worked really hard. People who work with her work really hard and those systems need to stay in place so she can continue to grow."
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